**3.3 Estimation method and model**

This chapter employs the two-step system generalized method of moments (GMM). Studies on the relationships between CG and performance should control


*Three of the four IBs in Oman are windows, but they have separate financial statements (Sohar Islamic, Muzn Islamic & Meethaq Islamic).*

#### **Table 1.** *Sample of the study.*


*\* The SSB score sums the value of the dichotomous characteristics of the SSB, which takes a score bounded by 0–1, namely (SSB size: "1" for banks with 5 or more members & "0" otherwise), (SSB cross-membership: "1" if at least one SSB scholar with cross-membership & "0" otherwise), (SSB educational qualification: "1" if at least one SSB scholar with PhD & "0" otherwise), (SSB reputation: "1" if at least one SSB scholar sits on the SSB of AAOIFI and at least two* Shari'ah *board memberships & "0" otherwise) and (SSB expertise: "1" if at least one SSB scholar with experience and knowledge in the field of accounting/economic/finance & "0" otherwise).*

*SSB-SIZE = SSB size; SSB-CRM = SSB cross-membership; SSB-DQ = SSB educational qualification; SSB-REP = SSB reputation; SSB-EXPER = SSB expertise.*

#### **Table 2.**

*Measurement of variables.*

for endogeneity, and thereby GMM can be used to control for this issue [37, 38]. To test the hypotheses, the following regression model is employed:

$$\begin{aligned} \text{PERFORM}\_{\text{it}} &= \beta\_0 \text{PERFORM}\_{\text{it}(-1)} + \beta\_1 \text{SSB-SCOREE}\_{\text{it}} + \beta\_2 \text{BSIZE}\_{\text{it}} + \beta\_3 \text{BAGE}\_{\text{it}} \\ &+ \beta\_4 \text{GDP}\_{\text{it}} + \beta\_5 \text{INFLATIONN}\_{\text{it}} + \varepsilon\_{\text{it}} \end{aligned} \tag{1}$$

*PERFORMit* <sup>¼</sup> *<sup>β</sup>*0*PERFORMit*ð Þ �<sup>1</sup> <sup>þ</sup> *<sup>β</sup>*1*SSB*‐*SCOREit* <sup>þ</sup> *<sup>β</sup>*2*SSB*‐*SCORE* � *CRISISit* þ *β*3*BSIZEit* þ *β*4*BAGEit* þ *β*5*GDPit* þ *β*6*INFLATIONit* þ *β*7*CRISISit* þ *εit*

(2)

**4. Analysis and findings**

*DOI: http://dx.doi.org/10.5772/intechopen.92368*

**4.1 Descriptive statistics**

**4.2 Correlation**

**Performance variables**

*INFLATION = inflation rate.*

SSB-SCORE 1

*\*\*\*Correlation is significant at 1%.*

BSIZE 0.016 1

BAGE 0.144**\*\*\*** 0.062 <sup>1</sup>

GDP 0.051 0.056 0.029 1

**Table 3.**

**Table 4.**

**43**

*Pearson correlations.*

*Descriptive statistics.*

**Explanatory and control variables**

The results of descriptive statistics for the variables are presented in **Table 3**. **Table 3** shows that the mean of dependent variables (ROA and ROE) are 0.358 and 8.776, respectively. **Table 3** depicts that the mean of the SSB-SCORE is 3.399, ranges from 0 to 5. This is in line with the findings of [27] who report that the mean value of SSB-SCORE for GCC and Southeast Asia IBs is 3.500. Turning to the bank and country variables (bank size, bank age, GDP and inflation rate), **Table 3** shows that the mean of these variables are 5.977, 0.983, 4.062 and 5.591, respectively.

*Relevance of* Shari'ah *Governance in Driving Performance of Islamic…*

**Table 4** denotes the Pearson correlation coefficients between the explanatory variables. Based on **Table 4**, the highest correlation is found between INFLATION and SSB-SCORE (*r* = 0.39). **Table 4** also presents that all the correlation coefficients are less than 0.95; hence, the collinearity between the variables is not a concern, as suggested by [40]. According to **Table 4**, SSB-SCORE shows a significant correlation with BAGE and INFLATION (*p* = 0.01). Further, INFLATION has a significant

**Variables Mean Std. dev. Min Max**

ROA 0.358 6.372 45.311 31.953 ROE 8.776 21.819 73.311 276.738

SSB-SCORE 3.399 1.020 0.000 5.000 BSIZE 5.977 0.668 3.335 7.591 BAGE 0.983 0.422 0.301 1.869 GDP 4.062 2.744 7.080 12.670 INFLATION 5.591 4.996 4.900 30.030 *Number of IBs = 66; Number of observations = 381. ROA = return on asset; ROE = return on equity; SSB-SCORE =* Shari'ah *supervision score, BSIZE = bank size, BAGE = bank age, GDP = gross domestic product,*

**Variables SSB-SCORE BSIZE BAGE GDP INFLATION**

INFLATION 0.395**\*\*\*** 0.178**\*\*\*** 0.187**\*\*\*** 0.041 <sup>1</sup>

where *i* indicates the IBs (*i* = 1, … .,66) and *t* indicates the annual time period (*t* = 2007, … .,2015), PERFORM = performance of IBs, SSB-SCORE = *Shari'ah* supervision score, SSB-SCORE � CRISIS = interaction term between SSB score and financial crisis<sup>3</sup> , BSIZE = bank size, BAGE = bank age, GDP = gross domestic product, INFLATION = inflation rate, CRISIS = a dummy variable: "1" for the period 2007–2009, "0" otherwise<sup>4</sup> and ε = error term.

<sup>3</sup> Dummy interaction is employed following literature [39].

<sup>4</sup> To capture the crisis impact, dummy interaction is employed following literature, in which: "1" for the period 2007–2009, otherwise "0" [31].
